1. Introduction to Mercosur
The Southern Common Market, commonly known by the Spanish abbreviation Mercosur, is a regional trade bloc founded in 1991 that currently includes Argentina, Brazil, Paraguay, and Uruguay.
The goal of Mercosur is that of promoting free trade and economic integration among its members, as well as between its members and third countries. For this purpose, Mercosur enters into specific bilateral agreements, called Economic Complementation Agreements (ACE), such as those entered by other South American countries like Peru, Chile, Colombia and Mexico. Such agreements generally entail tariff reductions on goods traded between the signatory countries, rules of origin, and trade facilitation measures, including customs procedures and dispute resolution mechanisms.
Interestingly, Mercosur:
has
268 million consumers (not considering ACE countries);
accounts for approximately
70% of South America’s GDP; and
its key sectors of production include
(i) agriculture (meat, dairy products and fruits);
(ii) industry (automotive and machinery) and
(iii) services (financial, telecommunications and IT).
2. The relations between Mercosur and the European Union until now
Mercosur is a big market for EU exports and, until now, it was the only major trading partner in Latin America with which the EU lacked a preferential trade agreement. At the same time, the EU is Mercosur’s second-biggest good trading partner, after China and ahead of the United States.
The thriving nature of the trade relations between Mercosur and the EU is represented in the following table.
EUMercosurTrade in Goods (2023)Exports to Mercosur: €55.7 billionExports to EU: €53.7 billionTrade in Services (2022)Exports to Mercosur: €28.2 billionExports to EU: €12.3 billionTop Export CategoriesMachinery and appliances (26.7%)Chemicals and pharmaceuticals (25%)Transport equipment (11.9%)Mineral products(29.6%)Foodstuffs, beverages, tobacco (19.2%)Vegetable products (17.9%)
Despite the above, Mercosur’s economies are highly protected, and European firms face many trade barriers when exporting there, which makes it hard for them to compete under fair conditions. These barriers include, among other, high import duties, burdensome procedures, as well as technical regulations and standards, which differ from international ones.
3. The EU-Mercosur Agreement
The negotiations for a comprehensive trade agreement between the EU and Mercosur were launched in June 1999. After a suspension, talks resumed in 2010. The protracted negotiations gained renewed momentum in 2016, and, in 2019, the European Union and Mercosur concluded the talks following new tariff-reduction offers.
Eventually, on December 6, 2024, both parties reached a political agreement to enhance the deal and address concerns related to sustainable development (the “EU-Mercosur Agreement” or more generally the “Agreement”).
The Agreement, which is composed of a political and cooperation pillar and a trade pillar, has not come into force yet. The conclusion of negotiations marks only the first step in the process toward finalizing the Agreement (see, Section 5 below).
In terms of content, the Agreement addresses several issues. Its key themes include:
Market Access – The Agreement foresees significant
reductions in tariffs, especially
in key sectors (like those of automobiles, chemicals, and raw materials), with a focus on supporting small and medium-sized enterprises (SMEs).
Services – To open new opportunities for growth and enhance competition, broader access will be granted to service providers across industries such as telecommunications, financial services, and transport.
Sustainability and Environment – In the context of their shared environmental goals, both parties reaffirmed their
commitment to the Paris Agreement, with specific attention to deforestation and sustainable trade practices. The Agreement could also be suspended if these goals are not met.
Agriculture and Food – One of the most pressing issues is the
regulation of agricultural products, a pivotal area that influences not only the future of EU farmers but also the protection of sensitive sectors and the safeguarding of rigorous food safety standards.
Rules of origin and Intellectual Property – To safeguard respective products and sensitive markets, the Agreement regulates the
protection of Geographical Indications (e.g. Parmesan and Champagne) and the harmonization of technical standards. It also enhances intellectual property protections.
Government Procurement – With the aim of creating new opportunities and a stronger collaboration, the two blocs are opening government procurement markets, enabling companies to bid for public contracts in each other’s regions.
Social Rights – The parties assessed the economic, social, and human rights impacts of the Agreement’s trade provisions, ensuring that neither side can promote trade or investment by ignoring or failing to enforce labour laws and social impacts.
Dispute Resolution – The commitments on Trade and Sustainable Development will be enforceable through a
dispute settlement mechanism involving an independent panel of experts, civil society participation (including employers and trade unions), and the expertise of international bodies.
Economic and Political Cooperation – Political dialogue and cooperation will be further strengthened in areas such as migration, green technologies, raw material sourcing, research, and the fight against money laundering and cybercrime.
Review and Monitoring –Regular reviews of the Agreement’s impact are to be conducted, incorporating stakeholder input to ensure transparency and facilitate progress.
The most significant key issues under the Agreement are (i) tariff reductions and their implementation timelines (see Sub-Section 3.1 below); (ii) sustainability and environmental protection commitments (see Sub-Section 3.2 below); and (iii) changes in services and professional mobility (see Sub-Section 3.3 below).
3.1. What types of tariff reductions are provided for under the Agreement?
Mercosur’s starting tariff levels are considerable[1] and EU tariffs are also very high, especially on agri-food products[2]. Therefore, EU-Mercosur Agreement establishes a tariff elimination schedule, gradually liberalizing trade across various sectors with specific timelines and percentages for different products.
Generally, the Agreement eliminates tariffs on more than 90% of bilateral trade. Under the Agreement, the EU would indeed remove import duties on 92% of Mercosur goods exported to the EU, while Mercosur would eliminate customs duties on 91% of EU goods exports to Mercosur.
Under the Agreement, depending on the product type, tariff reductions are implemented in the form of (i) immediate tariff eliminations (i.e. elimination within the first year); (ii) gradual reductions (i.e. reduction over a period of 4 to 10 years); or (iii) quota reductions (i.e., phased-in reductions over periods ranging from 5 to 10 years depending on the product).
For example:
Industrial Goods – The EU will eliminate duties on all industrial goods over a transitional period of up to 10 years. Tariffs on EU cars and automotive parts will be eliminated over a period of 18, 25, and 30 years, depending on the specific product, making it easier for European firms to export to Mercosur countries.
Agricultural Products – The EU will liberalize 82% of Mercosur agricultural imports and Mercosur will remove tariffs on 93% of tariff lines for EU exports. For some products, the Agreement introduces tariff rate quotas (TRQs), allowing a specified volume of imports at reduced tariff rates. Once these quotas are filled, the standard tariffs will apply.
High tariffs on EU agri-food exports will be removed. This includes key products like olive oil, wine, malt. For some dairy products, zero duties will gradually apply within quotas. The EU will grant very limited access to its market to imports of agri-food products. For sensitive products like beef, poultry or sugar, access to the EU market will be limited through gradually implemented quotas (beef: a quota of 99,000 tonnes, subject to a 7.5% duty; poultry: quota of 180,000 tonnes, phased in over five years; sugar: duty-free quota of 180,000 tonnes).
Lastly, a bilateral safeguard clause can be applied in case increased imports cause or even only threaten to cause serious injury to the relevant sectors.
Raw materials – The deal will lower EU tariffs on critical raw materials and their processed products, making exports to the EU easier and imports cheaper. It will also eliminate tariff escalation, incentivizing Mercosur to develop local production of value-added products. Brazil will retain some taxes on exports of certain materials, but the EU would benefit from a ceiling on them. For Argentina, all export taxes on minerals are waived.
3.2. What are the sustainability and environmental protection commitments included in the Agreement?
Under the Agreement, with regards to sustainability and environmental protection, the EU and Mercosur:
Commit to
implementing the United Nations Framework Convention and the Paris Agreement on climate change, with possible suspension of benefits if a party does not do so.
Undertake to support existing climate and environmental standards and not lower or dilute them. The Agreement prohibits either side from encouraging trade and investment by derogations from or not enforcing environmental laws.
Commit to
promote sustainable fisheries and sustainable forest management, among others. The deal will also open opportunities for supply chains of products that are produced in a way that helps conserve the environment.
The commitments on trade and sustainable development will be enforceable through a dispute settlement mechanism that includes (i) external review by an independent panel of experts, (ii) role for civil society at all stages, and (iii) calling on the expertise of international bodies.
3.3. What will the Agreement mean for services and investments?
The Agreement will make it easier for EU companies to offer their services in Mercosur and vice versa, whether by setting up locally or providing services across borders. Additionally, it will reduce discrimination and create new opportunities for service providers and investors from both regions.
Many sectors, such as business services, financial services, telecommunications, maritime transport, and postal and courier services, are expected to benefit from these measures.
The EU and Mercosur will still regulate their service markets fairly and without discrimination and the Agreement will not liberalize public services like healthcare or state-funded education. Furthermore, it will ensure that regulators, both foreign and domestic, can continue to establish and enforce non-discriminatory rules to protect health, safety, the environment, and consumers while ensuring high-quality services and workers’ rights.
4.The Economic Impact Expected to Originate from the Agreement
The EU-Mercosur Agreement is expected to significantly increase bilateral trade by up to 37% in the long term, while the negative effect on trade with other regions will be limited[3]. Several studies have assessed the Agreement’s impact on GDP, with one predicting a €10.9 billion increase for the EU (0.1% of GDP) and a €7.4 billion one for MERCOSUR (0.3% of GDP) by 2032[4].
4.1. What are the benefits for European companies investing under the Agreement?
European companies stand to gain several advantages from the Agreement, namely:
Significant cost savings – The removal of high Mercosur tariffs will result in over
€4 billion in annual savings on customs duties
for EU exporters.
Streamlined exports – The immediate tariff elimination for approximately 70% of goods will
facilitate smoother market entry. Moreover, simplified and more efficient customs procedures will
reduce administrative burdens and improve the speed of trade.
Access to a large market – The Agreement will open access to a combined market of more than
700 million consumers (Mercosur and EU together), enhancing
opportunities for expansion.
Support for small and medium-sized enterprises (SMEs) – The Agreement includes a section focused on
helping SMEs with the specific challenges they face in trade and investment. This is important, as over 30,000 European SMEs currently export to Mercosur, and this number is likely to increase due to easier market access.
Equal access to public contracts – EU companies will be able to
bid for public contracts on the same terms as Mercosur businesses.
Sector-specific opportunities – The Agreement will open
substantial opportunities for EU companies in
key sectors such as the automotive industry.
Employment and economic growth – Increased foreign investments are expected to drive
job creation and economic development.
Encouragement of strategic investments – The Agreement will promote
investments in South America’s infrastructure and sustainable technologies, creating new opportunities for European companies.
Political and strategic advantages – The Agreement will fortify political and economic relations with Latin America, offering a strategic response to rising global protectionism. It will ensure long-term stability by
preventing discriminatory trade practices and creating a more predictable and secure environment for both EU and Mercosur businesses.
4.2. What are the benefits for medium-sized European companies partnering with Mercosur firms?
In addition to the benefits already mentioned, medium-sized European companies partnering with Mercosur firms will also gain a range of additional advantages:
Full access to resources – The Agreement provides
preferential access to critical raw materials and green goods, strengthening supply chains and competitiveness.
Stronger competitiveness –
Improved standards in areas such as intellectual property and environmental protection
ensure compliance and predictability, while investment incentives promote local operations, boosting competitiveness.
Opportunities for collaboration and innovation – The Agreement encourages
joint ventures with local companies, leading
to innovative products tailored for local markets.
Support for sustainable practices – By aligning with sustainability goals, the Agreement helps
enhance brand reputation and strengthens the corporate social responsibility profile.
5. The ratification process and the entry into force of the Agreement
The ratification process for the EU-Mercosur Agreement involves several complex stages. Specifically:
, after initial approval, the Agreement must be
ratified by the parliaments of all four Mercosur countries (
i.e., Argentina, Brazil, Paraguay, Uruguay) as each country has its own legislative process.
, the process is more complex.
The text of the Agreement was published on the European Commission’s website, and it will now be checked by lawyer linguists and translatedinto all official EU languages.
Then, the Commission will transmit a proposal to the Council (where EU countries are represented by their Trade Ministers) and the Parliament for the signature and conclusion of the Agreement. This stage requires a qualified majority: 55% of Member States (15) representing at least 65% of the EU population must be in favour. It means that a minimum of four States representing at least 35% of the EU population could block the Agreement.
Lastly, the Agreement must be ratified by the national parliaments of all 27 EU member states.
The legal structure of any final EU-Mercosur deal, and therefore the ratification procedure, will be decided only after the negotiations between the EU Institutions are completed. Two main models are likely to be used:
In the most optimistic scenario, the full ratification process is expected to take between 12 to 18 months as of the signing date, which is not known yet. However, delays are a frequent challenge in trade agreements. To put it into perspective, it took about nine years for the agreement between the European Union and Canada to be fully ratified from its signing in 2014 until final approvals were completed in 2023. For the purpose of clarity, signing an international treaty does not give it any legal force, only its ratification does.
6. The Challenges and Opposition Faced by the Agreement
The EU-Mercosur Agreement was reached in December 2024, but there are still significant challenges and obstacles before it can take effect. Along the complex signing and ratification process, political tensions in EU play a critical role. Indeed, some EU countries are concerned about the impact on local industries (especially agriculture) and the environment, and this is leading to political divisions. These divisions could make the ratification process more difficult and may result in further delays.
6.1. What are the political tensions originated by the Agreement inside the EU?
The Agreement has caused major political tensions within the European Union. Specifically:
Supporters – The European Commission president Ursula von der Leyen,
Germany and Spain strongly support the Agreement, which would diversify trade and strengthen their economies, seeing it as an important achievement and a geopolitical win.
The Agreement is expected to bolster the German automotive sector (Volkswagen, BMW, Mercedes-Benz) and chemicals industry (companies like Bayer), by reducing tariffs and opening markets in South America.
Spain is predicted to gain from the deal, with its manufacturing, chemicals, and pharmaceutical sectors benefitting. Exports are expected to grow by 37%, boosting GDP by 0.23% and creating jobs.
Critics – Numerous aspects of the deal have given rise to objections, but two issues stand out:
farming and the
environment.
France is strongly against it since it worries that cheap imports, like poultry and beef, could harm its farmers. Paris has gathered support from other countries, including
Poland, Austria, and Ireland (the latter is the fifth-largest beef exporter in the world), to block the deal unless certain conditions are met.
The Netherlands and
Belgium have
only expressed reservations about the deal.
European farmers (particularly from France, Ireland, Belgium and Poland) fear unfair competition, especially from beef, poultry, and sugar imports, which could be produced at lower costs in Mercosur countries, where food safety, animal welfare, and environmental regulations are less stringent. The stricter EU standards make farmers in the EU face higher costs. They also point out that cattle in Mercosur countries may be treated with hormones or chemicals that are banned in the EU. There are also concerns about the possible environmental effects of the deal, especially related to deforestation in the Amazon rainforest because of the higher demand for products like beef and soy.
Middle Ground –
Italy stands in the middle, acknowledging
potential benefits for industries like
automotive,
engineering,
fashion, and
regional foods (
e.g. Parmesan cheese). However, there are
also concerns regarding the broader economic implications, especially for sectors that could face competition from the Agreement. Remarkably, Italy, as a large EU Member State,
could have enough voting power to stop the Agreement or allow it to prosper at the European level.
6.2. What strategies are being considered to facilitate ratification?
The Commission is examining the opportunity of splitting the EU-Mercosur Agreement into two separate agreements: one covering only the areas of exclusive EU competence and the other covering areas of mixed competence with Member States[5].
In Mercosur’s case, the EU might consider separating the political and cooperation agreement, including issues like labour standards, the environment, and transport, from the main trade agreement that would require only a simple majority for approval. The idea is to approve the parts within the exclusive EU competence, allowing some trade benefits to be enjoyed sooner.
However, splitting the Agreement could weaken the deal’s overall impact and ambition. Also, Mercosur might not agree to splitting the deal and may prefer a single, comprehensive agreement.
7. Conclusions
Mercosur is a dynamic economic bloc, and the EU-Mercosur Agreement represents a significant opportunity for EU and Mercosur companies to expand their business operations in Latin America, respectively Europe.
As a short summary of things, if and when fully ratified, the Agreement will remove over 90% of tariffs between the two regions, offering annual savings of €4 billion, particularly benefiting sectors like automotive, machinery, chemicals, and pharmaceuticals. It also encourages investments in infrastructure and sustainable technologies, thereby enhancing competitiveness across various sectors. Finally, the Agreement is also a pioneering deal for sustainability, with commitments to combat climate change, deforestation, and uphold workers’ rights.
In summary, the combination of market access, cost savings, and potential for growth makes investing in Mercosur an attractive option for European companies looking to diversify their operations and capitalize on emerging opportunities in a rapidly evolving global landscape.
Useful links
Text of the Agreement: link
European Commission website on EU-Mercosur Agreement: link
Questions and answers on the EU-Mercosur Agreement: link
Factsheets and guides on the EU-Mercosur Agreement: link
Sincere gratitude is extended to José María Allonca, Leticia Mariz Schweizer,
Stefano Bianchi, and Chiara Pieraccini for their significant contribution to this informative document
[1] The tariffs are up to 35% on automobiles, 18% on components, 20% on machinery, 18% on chemicals, 14% on pharmaceuticals and 35% on clothing and footwear; in agriculture, up to 28% on dairy products, 25% on beverages and soft drinks, 27% on wines and 20% on confectionery.
[2] For instance, the EU tariffs are, up to 35% on wines, 20% on alcoholic beverages, and compound tariffs equivalent to an ad valorem rate of up to 62% on out-of-quota meat.
[3] Real Instituto Elcano. (2020). Why does Latin America matter? Elcano Royal Institute. Available at: link.
[4] LSE Consulting. (2020). Sustainability Impact Assessment in support of the Association Agreement negotiations between the EU and Mercosur: Final report. London School of Economics and Political Science. Available at: link.
[5] Martin, D., & Ford, G. (2025, January 15). Commission plans for Mercosur deal split may not pass Parliament test. Borderlex. Available at: link.
